People walk past the window of an H&M store in Paris. Analysts say the Yangon dispute highlights the needs for social and labour reforms in Myanmar.
Photograph: Regis Duvignau/Reuters

Workers demanding better conditions and benefits have destroyed the production line of a Chinese-owned factory in Myanmar making clothes for Swedish fashion retailer Hennes & Mauritz, in one of the most violent labour disputes in the country in years.

The month-old dispute, which also saw managers attacked, highlights the need for Aung San Suu Kyi’s government to enact social and labour reforms, analysts say, while at the same time reassuring investors looking to tap the opening of one of the world’s fastest growing economies after decades of isolation.

Production at Hangzhou Hundred-Tex Garment (Myanmar) Company, which was one of H&M’s 40 suppliers in Myanmar, has been halted since 9 February, workers and managers in the Chinese company said.

“H&M group is deeply concerned about the recent conflict and our business relationship with this factory is on hold at the moment,” the Swedish-based company said in a statement. It declined to elaborate on the impact on its global supply chain.

“We are monitoring the situation closely and are in close dialogue with concerned parties. We strongly distance ourselves from all kind of violence.”

Labour activists say the protest in the commercial hub Yangon – in which equipment, buildings and vehicles were damaged – shows the lack of protection for workers in the labour-intensive textile industry.

The dispute started with a strike in late January following the sacking of a local labour union leader, according to workers and managers. Workers demanded a better performance review system and healthcare coverage.

It turned violent on 9 February, prompting the factory’s closure. Video footage shows dozens of female workers surrounding and beating a Chinese manager who was struggling to escape. One company manager and a local labour department official confirmed the authenticity of the footage.

In late February hundreds of workers stormed the factory and damaged facilities including textile machinery, computers and surveillance cameras.

“The tension between workers and management was getting bigger day by day,” said the company’s former union leader That Paing Oo, who was fired in January for taking leave without approval.

He had led a labour protest late last year that successfully pushed Hangzhou Hundred-Tex Garment to compensate employees who did not receive overtime pay, several workers said. The company confirmed that it had paid a delayed overtime payment of 70 million kyat (£42,300) to its 570 workers based on a settlement reached with the workers in December.

The Chinese embassy in Myanmar described the incident as an “attack” and has filed a “serious request” to the Myanmar government to hold those involved accountable.

No one was arrested in the late February violence, police said. Workers’ representatives are still negotiating with management over conditions once the factory is able to re-open.

The Chinese company makes garments such as skirts and shirts exclusively for H&M, its assistant manager, San Htwe, said. He said the damage would cost around $75,000 (£61,500), and the company was planning to demand compensation from Myanmar’s Labour Department.

The conflict is troublesome for H&M, which is widely seen as being at the forefront among large apparel companies in promoting workers’ rights and fair wages.

H&M has called on governments in sourcing countries such as Cambodia and Bangladesh to ensure fair pay for workers. It has said it cannot unilaterally require individual suppliers raise wages as it generally shares them with other brands, although according to the owner that is not the case with the factory in this dispute.

H&M, which sources the bulk of its clothes in Asian low-cost countries such as Bangladesh, Cambodia and Myanmar, generally ranks high in sustainability indexes such as the Corporate Knights magazine’s Global 100 index, where in 2016 it ranked 20th. There was only one other fashion manufacturer ahead of it in the ranking, which was Adidas.

Myanmar’s fast-growing textile industry, which employs more than 300,000 workers, has become attractive to global apparel brands such as H&M and US retailer Gap Inc following the easing of economic sanctions by the US and the EU.

A minimum monthly wage of around $63, based on a six-day work week, gives Myanmar a competitive advantage over neighboring garment producing hubs such as Vietnam and Cambodia, where the monthly minimum wage ranges from $90 to $145, according to the International Labour Organisation.

But labour activists and industry analysts say Aung San Suu Kyi’s government, in office for almost a year, has to do more to ensure safety for workers as well as investment stability for employers in a country where strikes and protests are not uncommon.

“Industrial relations are still only a few years old in the Myanmar garment industry, and effective cooperative structures are still being developed,” said Jacob Clere, who works on an EU-funded project to improve Myanmar’s garment industry.

The Ministry of Labour, Immigration and Population, which was involved in mediation between workers and employers of Hangzhou Hundred-Tex Garment, said it was looking to amend laws to improve the legal framework for disputes.

Maung Maung Lay, vice president of Myanmar’s Chamber of Commerce, said investors needed to be patient.

“Being a late comer, there’s a leap forward for Myanmar to catch up in terms of international labour laws,” he said. “Rome wasn’t built in a day.”